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Before: SHRI H.S. SIDHU
Date of Hearing : 14-6-2016 Date of Order : 14-6-2016
O R D E R These appeals filed by the separate assessees against the respective orders of Ld. CIT(A)-XXV both dated 10.9.2014 for the assessment year 2010-11. Since the issue involved in these appeals are common and identical, hence, were heard together and are being disposed of by this common order for the sake of convenience, by dealing with 2010-11).
The grounds raised in (AY 2010-11) read as under:-
i) That the order passed by the Ld. CIT(A) is against the law, facts and circumstances of the case and must be quashed. ii) That the addition made of Rs. 73,902/- u/s. 14A read with Rule 8D of the Income Tax Rules is uncalled for, since the assessee has not claimed any expenditure against the investment income, except minor amount of Rs. 56/- and, therefore, the question of disallowance does not arise and be deleted. iii) That the assessee prays that she be allowed to add, amend or alter the grounds of appeal, at the time of hearing.
3. The grounds raised in (AY 2010-11) read as under:-
i) That the order passed by the Ld. CIT(A) is against the law, facts and circumstances of the case and must be quashed. ii) That the addition made of Rs. 2,26,813/- u/s. 14A read with Rule 8D of the Income Tax Rules is uncalled for, since the assessee has not claimed any expenditure against the investment income, except minor amount of Rs. 8,880/- and, therefore, the question of disallowance does not arise and be deleted. iii) That the assessee prays that she be allowed to add, amend or alter the grounds of appeal, at the time of hearing.
(AY 2010-11)- MRS. NEHA MAHESHWARI
The brief facts of the case are that the return of income for the assessment year 2010-11 was filed on 26.7.2010 declaring taxable income of Rs. 2,66,350/-. It was observed by the AO that inputs from the departmental system revealed that the assessee has undertaken the transactions amounting to Rs.47,88,715/- in terms of investment in mutual funds etc. Notice u/s 148 of the IT Act,1961 was issued on 19.06.2012 after recording the reasons that income has escaped assessment within the meaning of section 147 of the IT act,1961 in the case of the assessee the assessment year 2010-11 and duly served upon the assessee. After providing a reasonable opportunity to the assessee, notice s u/s 142(1)/143(2) of IT Act, 1961 were issued on 2.11.2012, which were duly served upon the assessessee. In compliance to the above referred notices Ld. Authorised Representative of the Assesee appeared from time to time and filed the requisite details which were examined with reference to the contents of the inputs available with the AO. The books of accounts were produced and the same were examined on test check basis by the AO. Thereafter, the AO made the various additions and completed the assessment at income of Rs. 16,40,250/- u/s. 147/143(1) of the I.T. Act vide his order dated 20.1.2014.
Against the aforesaid additions, assesssee made an appeal before the Ld. CIT(A) who vide impugned order dated 10.9.2014 has partly 3 allowed the appeal of the Assessee, but affirmed the addition made by the AO u/s. 14A of the Income Tax Act, 1961.
Against the order of the Ld. CIT(A) assessee is in appeal before the Tribunal.
At the outset, Ld. Counsel for the assessee submitted that the assessee has not claimed any expenditure against the investment income, except the minor amount of Rs. 56/- and therefore, the question of disallowance does not arise and hence, the addition of Rs. 73,902/- made u/s. 14A of the Act may be deleted.
On the other hand, Ld. D.R relied upon the orders of authorities below and stated that the same may be upheld.
I have heard rival parties and have gone through the material placed on record. I have also considered the evidences filed by the assessee and have also gone through the assessment order as well as the appellate order. On a careful perusal of the record, it is noticed that the disallowance made in the assessment order is based on estimation basis under section 14A of the I.T. Act. In this connection, the legal position with regard to the applicability of Rule 8D of the IT Rules and also the provision of section 14A of the IT Act is now well crystallized by the later decisions of the Supreme Court In the case of Walfort Share & Stock Brokers, which has been followed and applied by the Bombay High Court in the case of Godrej Boyce and the Jurisdictional High Court in the case of Maxopp Investment. Reference may be made to certain observations of 4 the Bombay High Court and the Delhi High Court in the said judgments which are as under:
(i) The Bombay High Court in the case of Godrej Boyce has held as under: " ..... In order to determine the quantum of the disallowance. there must be a proximate relationship between the expenditure and the income which does not form part of the total income. Once such a proximate relationship exists. the disallowance has to be effected.
All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissible to restrict the provisions of Section 14A by an artificial method of interpretation.
……..
Hence, the intention of section 14A is clearly to disallow all expenses relating to the non taxable income, and to curb the practice of claiming allowances for expenditures on exempt income. All that is required is to show that there is a 'proximate cause' between the expenditure incurred and the exempt income, A 'proximate cause' connotes a relationship between the expense and the exempt income (Walfort) .... ".
(ii) The Delhi High Court in the case of Maxopp Investment held as under:
"26. It was contended by the learned counsel for the assessees that the words "expenditure incurred" as appearing in section 14A(1) clearly mean that there must be actual expenditure. Of course, the actual expenditure must be for earning the exempt income.
We have already pointed out above, that we do not subscribe to the narrow interpretation sought to given to the words "in relation to" which the learned counsel for the assessees are espousing. Thus, we will have to consider the argument of the asssessees in respect of the expression "expenditure incurred" in the context of the ITA 687/09 & Ors Page 25 of 38 expenditure being in connection with or pertaining to income which does not form part of the total income under the said Act.
It was contended that unless and until there was actual expenditure for earning the exempted income,
there could not be any disallowance under section 14A.
While we agree that the expression "expenditure incurred" refers to actual expenditure and not to some imagined expenditure we would like to make it clear that the 'actual' expenditure that is in contemplation under section 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under section 14A of the said Act. "
9.2 Now applying the aforesaid legal position to the facts of the assessee’s case, it is noticed that the assessee has not claimed any expenditure against the investment income. The AO has made the addition on estimate basis which is not prescribed under the law. There is nothing on record to controvert the submissions made on behalf of the assessee.
9.3 In view of the aforesaid facts, I have no reason to disagree with the claim of the assessee that no further expenditure over and above the expenses already disallowed in the return of income is required to be disallowed under section 14A of the IT Act. Accordingly, it is held that the disallowance of Rs.73,902/- made by the assessing officer under section 14A of the IT Act by application of Rule 8D of the IT Rules is directed to be deleted.
With regard to (AY 2010-11) is concerned, following the consistent view taken by me in (AY 2010-11), as aforesaid, the addition involved in also stands deleted.
In the result, both the appeals filed by the different assesses stand allowed.
Order pronounced in the open court on 14th June, 2016.